On Dec 27, 2013, we reaffirmed our Neutral recommendation on
Norfolk Southern Corporation
). The company's top line and bottom line surpassed the
respective Zacks Consensus Estimate and year-ago results.
Currently, the Zacks Consensus Estimate for fourth quarter
earnings is pegged at $1.49 per share.
We remain highly optimistic on the company's growth across
most segments. In the coming days, Norfolk Southern expects
growth mainly on Intermodal and Merchandise shipments, which can
largely offset the lackluster performance by the Coal
Merchandize is expected to benefit from crude shipment, frac
sand shipments, along with shipment of plastics and shale-related
liquid petroleum gases. Further, Automotive shipments also remain
on the growth trajectory with North American vehicle production
projected to grow around 6% in the fourth quarter and 3% in 2014.
Norfolk Southern is also likely to gain from the Metal market,
with domestic steel production growth estimated at 4% in
Intermodal will continue to benefit from new business arising
from truckload conversion to rail intermodal services. The
company will also benefit from construction of new facilities and
launch of new services like the South Carolina Inland Port
project at Greer, South Carolina as well as likely conversion of
highway shipments from the port of Charleston to Greer for
automaker BMW and other customers.
With respect to agricultural shipments, Norfolk Southern
expects more grain crop export going forward along with higher
paper and lumber shipment backed by gradual recovery in the
However, the near-term growth of Norfolk Southern is expected
to be tempered by weak coal volumes that continue to hurt
revenues. Subdued coal demand in the south and high inventory
levels built from 2012 remain the deterrent factors to growth in
its coal business. Given declining demand for coal in power
plants, utility coal revenues will continue to remain headwinds
for the company in 2013. Softness in the domestic metallurgical
market will also hamper volume growth.
Further, the export coal market is also expected to remain
under pressure due to weaker demand in Europe and Asia. Weakening
of Australian currency and lower benchmark met coal prices will
affect pricing going forward. As a result, we have a cautious
stance over the long-term prospects of the company.
Norfolk Southern, which operates with other railroad companies
like currently retains a Zacks Rank #2 (Buy).
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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